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Three ‘hard truths’ about Canada’s trade

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From the Fraser Institute

Author: Jock Finlayson

In Canada’s case, a small number of sectors reliably generate significant trade surpluses, which help finance large trade deficits incurred in other parts of our economy.

Canada is an “open” economy that depends on cross-border flows of trade, investment and data/knowledge to maintain high living standards. To pay our way in a very competitive world, Canadians must produce and sell goods and services to customers in other countries. These exports furnish the means to pay for the vast array of imports that contribute to the well-being of Canadian households and allow our businesses to operate efficiently and grow by accessing bigger markets.

In 2022, Canada exported $779 billion of goods to other countries, along with $161 billion of services, for a total of $940 billion. The services category includes a wide array of commercial services including professional, scientific, technical, digital and financial, as well as transportation services and international tourism (when non-Canadian visitors travel to spend money here).

About three-quarters of Canada’s exports are destined for a single market—the United States, whose economy has steadily expanded in size over time to reach some US$25 trillion of gross domestic product today. Canada also sources the bulk of our imports from the U.S.

The centrality of the American market to Canada’s economic prosperity is the first “hard truth” about Canada’s trade, a point explored in a recent paper by Steve Globerman. Despite periodic efforts to diversify Canada’s trade and commercial links over the last 50 years, Canada remains as closely tied to the American economy today as we were in the 1990s. There’s little reason to believe the Trudeau government’s recently unveiled “Indo-Pacific” strategy will change the situation. Proximity, a common language and business culture, and the impact of extensive and unusually deep business and personal ties all serve to reinforce the American-centric character of Canada’s trade. It follows that the U.S. should continue to figure prominently in the trade promotion and investment attraction activities of Canadian governments.

A second “hard truth” about Canada’s trade is the outsized place of natural resource-based products in the export mix. The first table below breaks down Canada’s goods and services exports in 2022 into the main groupings.

Table 1

Added together, energy, non-metallic minerals and related products, metal ores, forest products and agri-food comprise almost half of the country’s total international exports of goods and services combined. Energy alone supplied 27 per cent of Canada’s merchandise exports (and 23 per cent of total exports) last year, generating a remarkable $212 billion in export-driven income for Canadian businesses, workers and governments.

Within the energy basket, oil and oil-based products dominate, providing about three-quarters of energy-based export revenues. Contrary to innumerable speeches and press releases issued by the current federal government, the energy share is likely to rise in the next several years, as LNG production from British Columbia comes on-line and Western Canadian oil exports increase following the completion of pipeline expansion projects.

The final “hard truth” is closely related to the second but carries a more nuanced message. Ultimately, every country will have a ledger showing the trade surpluses and trade deficits across its various industries. In Canada’s case, a small number of sectors reliably generate significant trade surpluses, which help finance large trade deficits incurred in other parts of our economy.

The second table provides a snapshot of Canada’s trade “balances”—the mix of deficits and surpluses by broad industry category.

Table 2

The story is a fairly simple one; positive trade balances in the energy, mining, forestry and agri-food sectors offset chronic—and in some cases very sizable—trade deficits in consumer goods, chemicals and plastics, motor vehicles/parts, and industrial and electronic goods. We also run a smallish deficit in our overall services trade.

The trade data are informative. Among other things, they tell us where Canada has, in the language of economists, a “comparative advantage” in the global context. For a market-based economy, a pattern of positive trade balances is evidence that it very likely enjoys a comparative advantage in the industries which report consistent trade surpluses. Armed with such information, smart policymakers should strive to create and sustain an attractive business and investment climate for the industries that produce trade surpluses. Unfortunately, this is a lesson that today’s federal government in distant Ottawa has struggled to digest.

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Federal government could save $10.7 billion this fiscal year by eliminating eight ineffective spending programs

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From the Fraser Institute

By Jake Fuss and Grady Munro

The federal government could save up to $10.7 billion this fiscal year by ending eight ineffective spending programs, finds a new report published today by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.

“Canada’s federal finances have deteriorated markedly over the last decade, largely due to a rapid run up in spending, deficits and debt,” said Jake Fuss, director of fiscal studies at the Fraser Institute.

“As previous governments have done before, a comprehensive line-by-line review of Ottawa’s spending is required to identify those programs or initiatives that are not fulfilling their purpose, or are not providing good value for tax dollars.”

The study, Identifying Potential Savings from Specific Reductions to Federal Government Spending, highlights eight federal programs where government spending
does not appear to be accomplishing its stated goals, or where government funding is unnecessary:

– $1.5 billion — Regional Development Agencies
– $1.7 billion — Federal support for journalism
– $587.6 million — Federal support for electric vehicle production and purchases
– $340.0 million — Two Billion Trees program
– $3.5 billion — Canada Infrastructure Bank
– $2.4 billion — Strategic Innovation Fund
– $202.3 million — Global Innovation Clusters
– $530.0 million — Green Municipal Fund

Critically, eliminating these eight programs could reduce federal government spending by $10.7 billion in 2024-25: “Though just a starting point, a savings of $10.7 billion would meaningfully improve federal finances and help Ottawa put the country’s finances back on a stable footing,” Fuss said.

This study is part of a larger series of collected essays on federal policy reforms, Federal Blueprint for Prosperity, edited by Fraser Institute Senior Fellows Jock Finlayson and Lawrence Schembri.

The essay series, also released today, details federal policy reforms in health care, environmental and energy regulations, tax policy, immigration, housing, trade, etc. to increase prosperity for Canadians and improve living standards.

To learn more and to read the entire collected essay series, visit www.fraserinstitute.org.

 

Identifying Potential Savings from Specific Reductions in Federal Government Spending

  • A marked deterioration in the state of Canada’s finances, driven largely by rapidly increasing spending, has created a need to review federal government spending to identify programs that are inefficient and/or ineffective. This study highlights eight spending areas that have easily identifiable problems, and should be a starting point for a more comprehensive review.
  • The eight spending areas identified are: Regional Development Agencies, Government Supports for Journalism, Federal Support for Electric Vehicle Production and Purchases, the 2 Billion Trees Program, the Canada Infrastructure Bank, the Strategic Innovation Fund, the Global Innovation Clusters, and the Green Municipal Fund.
  • These programs represent instances where government spending does not appear to be accomplishing the stated goals, and where government involvement is questionable.
  • For instance, despite research suggesting business subsidies do little to promote widespread economic growth, the seven regional development agencies report vague objectives and results that make it difficult for government officials or Parliamentarians to assess the efficacy of the spending.
  • Since the Canada Infrastructure Bank was first established in 2017, it has approved up to $13.2 billion in investments across 76 projects, but only two projects have been completed. These projects represent just $93.2 million (or 0.71 percent) of the total approved investments.
  • The federal government could save $10.7 billion in 2024–25 alone if it eliminated spending in these eight areas. This amount would be impactful in improving the state of Canada’s finances, and more savings could be achieved through a comprehensive review of all spending.
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Musk vs. the bureaucracy vs. Congress: Who has the power to cut spending?

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From The Center Square

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The Trump administration’s all-of-Washington shake-up has resulted in hundreds of lawsuits and cries of a “constitutional crisis,” with Elon Musk’s Department of Government Efficiency at the heart of many complaints from Democrats.

Critics of the department say its on shaky legal footing and have questioned whether Musk’s role violates the U.S. Constitution, as higher-ranking government officials often must be appointed by the president and confirmed by the Senate. The White House has maintained that, despite Musk being the public face of the department and seemingly directing its activities, he is only a “special government employee.” As such, he isn’t subject to a Senate confirmation.

But legal experts disagree on Musk’s role and authority within the federal government.

The Pacific Legal Foundation’s Michael Poon works for the foundation’s separation of powers practice group. Now that the White House has revealed the identity of the DOGE’s administrator as Amy Gleason, a healthcare technology executive who served under Presidents Donald Trump and Joe Biden, Poon likened Musk’s role to that of a “DOGE czar,” or even the president’s chief of staff – neither of which are senate-confirmed positions. Because Musk isn’t the department’s administrator, he doesn’t seem to have any formal authority, according to Poon.

“Agency heads have the power to ignore him because he doesn’t actually have formal power himself,” Poon continued, “but they probably listen because Musk is understood to have the president’s confidence,” similar to other positions Poon mentioned, including Trump’s border czar, Tom Homan, who also isn’t Senate confirmed but works side by side with the Department of Homeland Security. whose secretary, Kristi Noem, is Senate-confirmed.

“This kind of arrangement makes Musk informally powerful, but the power comes from the expectation that the president would back him, not any power that is, sort of, inherent in his position,” Poon said.

While Poon doesn’t think Musk’s role violates any constitutional requirements, he does appreciate the sudden interest the public is taking in the role of unelected federal officials in general. But since their function in the federal government has developed over many decades, it’s unlikely that anything resulting from the DOGE-Musk controversy would go very far in solving the problem.

“It’s appropriate to be scrutinizing of unelected officials and the power that they wield,” Poon said. “But it’s a concern that has been put to the side for the last hundred years, over which both major parties have worked to weaken these protections against unelected officials.”

If Americans want less power and more guardrails for unelected officials, it will take time to achieve, according to Poon.

“I don’t think that, as the current case law stands, Elon Musk’s role contravenes the Constitution, but if we think those protections should be strengthened…  that’s something that takes a concerted effort and it can’t vary depending on who is in control of the executive branch,” Poon said.

Thomas Berry, director of the Cato Institute’s Robert A. Levy Center for Constitutional Studies, finds the lack of transparency around DOGE and Musk’s role troubling.

“I think there’s very serious concerns about what exactly is happening with DOGE,” Berry said.

A lot of concerns with DOGE have to do with the Appointments Clause, which is the basis for Senate confirmations of presidential appointees and creates a system of accountability.

“The Appointments Clause of the Constitution says that the final decision maker on a lot of issues needs to be either the president or someone appointed by the president and confirmed by the Senate,” Berry said. “When the public perception is that Musk or anyone who’s not Senate-confirmed is making these decisions, you don’t have any elected person to blame.”

Even if the administration were to eventually reveal that the president approved all of Musk’s actions, the lack of transparency now is problematic for the public, according to Berry.

As for questions about Trump’s authority to establish DOGE and Musk’s role within it, President of the Liberty Justice Center Jacob Huebert thinks they’re unfounded.

“Article II of the Constitution gives all executive power to the president,” Huebert said. “As long as the president has ultimate decision-making authority here, I don’t see any problem with that.”

He applauds what he sees as Trump’s revision of the executive branch, bringing it closer to what it was intended to be.

“It’s the president deciding how the executive branch is going to run, which is very much the opposite of how it has long been run, where the bureaucracy is kind of leading things even though the bureaucracy doesn’t have any constitutional authority whatsoever,” Huebert said.

As far as Trump’s efforts to cut government spending through DOGE, Huebert’s unsure how it will play out, though he thinks it’s a valiant aim. The Constitution grants Congress power over the government’s purse, and some lawsuits are challenging the president’s attempts to cut spending that Congress has already appropriated. Even if DOGE were able to get federal agencies to cut their budgets and the courts ruled in their favor, Huebert thinks it will be difficult to motivate Congress to pass significantly smaller budgets.

“That to me seems like the biggest challenge for DOGE if part of the goal is to cut spending because Congress really likes to spend, including most of the Republicans in Congress, and the reasons that they’ve had to spend so much money have not gone away,” Huebert said. “All the incentives to spend, or most of them, are still there. So I don’t know how Trump or Elon Musk, if they want to bring it under control, can bring it under control.”

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